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Domestic investment is expected to mainly drive the Thai economic growth this year rather than foreign demand or private consumption. It is quite vital that the promised infrastructure projects start in 2016 for the economy to perform better this year. The Thai economy is likely to grow slightly stronger at 2.8 percent in 2016. This is highly dependent on the fiscal boost coming through, said Commerzbank in a research report.
In 2012 and 2013, the Thai economy had suffered because of the continued political uncertainty. Following the military coup in May 2014, the political climate alleviated slightly.
But the consumer and investor confidence continued to be weak and hurt growth outlook. Last year, the economic growth continued to be weak at about 2.8 percent. The subdued growth was due to weak foreign demand and excess production capacity, tentative private investment, slow private consumption and delays in government disbursements due to red tape and the increased anti-corruption measures, noted Commerzbank.
Meanwhile, disinflationary pressures are being faced by the Thai economy. Last year, Thailand had posted headline inflation of -0.9 percent. Inflation is likely to hover around 0 percent in 2016. This shows risks on the downside to inflation, given the sluggish economic rebound and lower oil prices. However, the Bank of Thailand has downplayed the risks of deflation. It mentioned that core inflation, excluding energy prices and raw food, continues to stay around 1 percent.
The Bank of Thailand has maintained its interest rate at 1.5 percent in May in spite of benign inflation. The central bank had last lowered its rate in the first half of 2015 by 50 basis points. The BoT is expected to keep rates on hold in the near future due to restricted effect on consumption given increased household debt to GDP and limited pass through to investment given that investor sentiment is weak, according to Commerzbank.
“We see BoT leaning towards a weaker THB to help maintain loose monetary conditions and to support exports,” added Commerzbank.
